Recovery Coordinator Objects to Scranton Plan

While the mayor and City Council finally came to terms in Scranton, Pa., over a revised financial recovery plan, the matter remains at a standstill because the city's state-appointed coordinator cited "several areas of concern."

The Pennsylvania Economy League, which must sign off on the plan, told Mayor Chris Doherty and council members Thursday that alternatives to real estate taxes, which include commuter and sales taxes as well as further voluntary donations from nonprofits, are too iffy.

Continued gridlock in this 77,000-population city in Lackawanna County could push city officials to explore a Chapter 9 filing.

"To me, that says the Pennsylvania Economy League has now decided the city will file for bankruptcy," council President Janet Evans said during Thursday's meeting. "The Pennsylvania Economy League has done nothing for the city of Scranton."

PEL executive director Gerald Cross disagreed. "We're not rejecting their plan and did not reject their plan. Our goal is to restore confidence in the banking community. Scranton's ability to borrow has been depreciated," Cross said in an interview.

The capital markets have essentially shut off Scranton, whose cash reserves last month dipped to $5,000. In June, Doherty said M&T Bank would not backstop $16 million in bonds after the council was late with a $1 million transfer to the Scranton Parking Authority for a bond payment. The city was the guarantor of the bonds.

In his letter to Doherty and Evans, Cross said differences in revenue and expenditure baselines between the city's revised plan and that recommended by PEL in March.

PEL also said the city should identify alternative revenue sources should the state legislature or the courts not approve sales, commuter or earned-income taxes. It cannot force nonprofits such as the University of Scranton and Marywood University to pay more. "Everyone hopes the nonprofits will pony up. The problem is, they don't have to legally," said council member Pat Rogan.

PEL also wants written commitments from nonprofits by Dec. 1, a feasibility analysis of multiple bond refinancings, which the city says will save money, and proof that it can obtain $17 million in financing for back pay to police and fire unions to settle an award the state Supreme Court ruled last year that the city must pay. The group also worries about $22 million in unfunded borrowing under the city's proposal. "These borrowing underpinnings haven't been realized," Cross said.

Gary Lewis, a private-sector financial consultant who lives downtown, also objected to the new plan, calling it "rife with error." He said revenues were overstated, debt service on existing debt was excluded, and that the total tax increase built into the plan is actually 70%.

"The city is broke. The recent attempt at a recovery plan only helps to reinforce just how bad the fiscal situation is," said Lewis, who favors filing for bankruptcy.

The state Department of Community and Economic Development, which oversees distressed communities under the Act 47 workout program, appointed PEL for Scranton. DECD has offered the city a $2 million interest-free loan and a $250,000 grant if it can agree on a recovery plan. It has relaxed its Aug. 15 deadline for ratification.

On Thursday, the council passed a resolution demanding that the parking authority reimburse it for that payment, and has threatened to sue. Council members said the SPA had a debt reserve account with $1 million in that it should have used before asking the council for the money.

Scranton last month its cash reserves dwindled to $5,000 at one point and for two weeks the city paid its employees the $7.25 per hour federal minimum wage.

Doherty and the council members, meanwhile, put aside their differences and approved the plan anyway Thursday, despite PEL's objections. The revision calls for a 33% increase in residential property taxes over three years instead of the 78% Doherty had originally sought.

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